Zero depreciation cover in car insurance: Is it worthwhile?

When you file a claim, your car insurer will employ a rather complex formula to ascertain the amount payable. This formula factors in depreciation, leaving you to pay a hefty fraction of the overall costs.

Cars depreciate, and this affects claim settlements in the realm of Compare Car Insurance. You might assume that comprehensive insurance coverage for your car eliminates the incidence of out-of-pocket expenses, but in that, you would be mistaken. When you file a claim, your car insurer will employ a rather complex formula to ascertain the amount payable. This formula factors in depreciation, leaving you to pay a hefty fraction of the overall costs. ADVERTISING You could ask, 'Why do they call it "comprehensive" cover, when that is clearly not the case?' We could argue over misleading terminology. Better still, we could concentrate on what they call zero depreciation cover in insurance parlance. What Is Zero Depreciation Cover? As the term implies, zero depreciation cover promises comprehensive coverage without factoring in for depreciation. If your car is damaged following a collision, for instance, and you file a claim, the insurer will cover the entire cost. How is this different from Standard Comprehensive Cover? The most obvious difference is that a zero depreciation cover promises full settlement coverage; depreciation will not make a dent here. On the other hand, standard comprehensive cover—i.e a plan that does not offer zero depreciation—will make estimations based on the 'current value' of your vehicle. 'Current value' factors in the depreciation on your vehicle. Consequently, if your car is involved in an accident, your standard policy will foot the bill after subtracting for depreciation whereas the policy with zero depreciation will foot the bill regardless of the current value of your car. Is Zero Depreciation Cover Worth It? Clearly, the zero depreciation rider has its advantages over standard coverage. But every good thing has its costs. To begin with, a policy that offers zero depreciation will cost more—close to 20 percent more—than your standard no-frills policy. This means that you are paying a substantially higher premium to ensure not having to chip in during claim settlement in the future. In other words, you are already paying towards those future costs. To customers seeking affordable insurance, this could be a deal breaker. On the other hand, the prospect of zero depreciation will attract customers who do not mind the higher annual rates because it promises peace of mind. A zero depreciation cover may also limit the number of claims that you can make annually. This is necessary because customers might otherwise file claims for every little dent, simply because they do not have to foot any of the costs. In the world of health insurance, insurers introduce co-pay for the same reason: to ensure that their customers do not go overboard in filing claims. Furthermore, the zero depreciation rider applies only to new cars, with the age limit being three years. If your vehicle is older, it is not eligible for this benefit. Moreover, it may not be cost-efficient to shell out higher premiums on a five-year-old vehicle. Who should buy Zero Depreciation Cover? If your car is brand new, a zero depreciation rider is a worthwhile investment. Many opine that zero depreciation works only for new drivers because they are more likely to dent or damage their car. However, even the most careful drivers are involved in accidents, often because the other guy was car

eless. Hence, zero depreciation is a good buy for any car owner provided the extra premium does not pinch.

[Source : http://www.moneycontrol.com/news/auto-insurance/zero-depreciation-covercar-insurance-is-it-worthwhile_1046868.html]